The biggest sustainability challenge: Creating successful degrowth business models
What does it mean to redesign Amazon as a degrowth business? Can a fashion brand use degrowth principles to be more successful? While these questions may sound very far from the reality of sustainability-as-usual they represent the next critical challenge for the sustainability movement: Creating thriving degrowth business models. Are we ready for D-Corps?
What would a degrowth business model for Amazon could look like? What would it mean for the company to adopt a business model grounded in “a planned reduction of energy and resource use designed to bring the economy back into balance with the living world in a way that reduces inequality and improves human well-being” (Jason Hickel’s definition of degrowth)?
This exercise would probably require more than a two-pizza team. The key question is whether Amazon can thrive as a business, meeting its customers’ needs while selling fewer and better products. Can it do well as a business, scaling down “ecologically destructive and socially less necessary production” and reducing excess consumption?
Amazon could start, for example, by applying three degrowth strategies offered by Roulet and Bothello: degrowth-adapted product design (“the creation of products that have longer lifespans, are modular, or are locally produced”), value chain repositioning (“exit from certain stages of the value chain and delegate some tasks to stakeholders”), and degrowth-oriented standard setting (“creation of a standard for the rest of the industry to follow”). I would suggest adding one more strategy to the list — charging customers for returns. Assuming Amazon’s returns rate is similar to e-commerce return levels (around 21% in 2021), this strategy could cut significant amounts of waste and other negative environmental impacts.
What is the importance of degrowth business models?
You can already start to see how difficult a degrowth redesign of the business model of a company like Amazon, or any company for that matter, would be. One thing to consider is that this is not just about changing a business model, but first and foremost about changing a mental model (or a mindset), one which brings both policymakers and business leaders to view the pursuit of growth as a key tenet of every economic system. As Nesterova points out: “At the outset, it should be noted that a transition towards a degrowth society (the aim) cannot be reduced to firms. Multiple aspects of societies, structures and agents, need to change, i.e. transform, alongside firms.”
Nevertheless, the search for viable degrowth business models is not a futile exercise. Here’s why: As I point out in my book “Rethinking Corporate Sustainability in the Era of Climate Crisis — A Strategic Design Approach,” I consider three potential pathways for a climate-driven transformation process: fixing, reforming, and revolutionizing the economic system. The first pathway sees climate change as a technical problem, which requires rapid decarbonization of the economy to limit warming to a maximum of 1.5C. It champions a virtuous cycle, whereby companies are mobilized to set (voluntary) ambitious decarbonization goals and influence governments to set more ambitious policies, which in return will push companies further to deliver bold action (see We Mean Business Coalition for example).
The second pathway acknowledges that the climate crisis cannot be addressed separately from other social and economic challenges (such as inequality and systemic injustices), as they are all connected, and thus focuses on policy changes to offer more holistic solutions (see the Green New Deal for example). Finally, the third pathway sees capitalism as the root of climate change. Therefore, it suggests that solving the problem requires rejecting and replacing the capitalist system with a better one. This pathway is grounded in concepts such as Capitalocene and degrowth.
The ‘battle’ between the three pathways on how the transformation to a new state, which I describe as awakened sustainability, will unfold is not necessarily a winner-takes-it-all situation. In my book, I suggest these pathways could have symbiotic relationships, where they interact with and affect one another, potentially reducing some of the differences and tensions between them. This is why I believe it is important to offer a viable picture of what a degrowth business model could look like — the more feasible and compelling it is perceived to be on a business level, the more dominant role degrowth can play in shaping the transformation process.
The narrative battle: Green growth vs. Degrowth
The ‘battle’ between the pathways is, in many ways, a competition between narratives. On the one side, you have the narrative of sustainable or green growth, which could be adjusted to represent the first two abovementioned pathways to transformation. Green growth suggests that we can eat the cake and have it too, i.e. have economic growth that is compatible with sustainability goals via “technological change and substitution [that] will allow us to absolutely decouple GDP growth from resource use and carbon emissions.” This narrative has many proponents that advocate for and promote it, including policymakers and businesses touting the benefits of what they consider to be a win-win strategy.
Take McKinsey for example, which promotes the idea of “sustainable and inclusive growth,” suggesting that these “three dimensions together will drive our future prosperity, but we lead with growth because sustainability and inclusion will not be possible without growth.” The company advances the notion that “while getting there will be challenging, it is possible” with an endless number of examples and even a weekly brief dedicated to news related to this vision. It manages to portray this pathway as feasible and attractive, presenting opportunities green growth offers to B2B companies, showing how “organizations that incorporate racial equity into their strategic agenda can promote growth and advance Black economic mobility,” and so on.
At the same time, the narrative of degrowth has a much harder time when it comes to presenting examples and opportunities on a business model level. This challenge was exemplified in an article published in Vogue Business earlier this year, entitled “Degrowth: The future that fashion has been looking for?” The article included only a few examples of degrowth businesses, like the British brand TOAST, which reduced its number of annual collections from six to three and offers a free renewal repair service, in-store clothes swaps through TOAST Circle, and so on. Another example in the article is the US retailer Toward, which caps the number of orders customers can make to 12 a year. Ana Kannan, the founder, explained her approach: “Our approach as a recently launched business might seem counterintuitive: Why might we, a growing business, want to limit sales? But we want to be clear that our impact on the environment will always be our first consideration.”
In other industries, we see a similar situation with a small number of companies, mainly startups or SMEs (small and medium enterprises) that experiment with degrowth-driven business models. Tobias Froese of ESCP Business School reports, for example, on the industrial manufacturer Allsafe and organic bakery BioKaiser, which “refrain from profit-seeking growth and at the same time have profit-sharing systems that, depending on the company, distribute the profits generated fairly to employees, suppliers, and/or environmental and social projects.”
Nesterova’s PhD dissertation “Small Business Transition towards Degrowth”, offers a few more examples of UK-based small businesses that embraced degrowth, including an environmental consultancy, a café, a natural dyes manufacturer, an ice cream producer, etc. All of these small businesses shared key characteristics of degrowth, including “environmental and social orientation and primacy of motives other than profit…, frugal use of materials, unorthodox marketing, embeddedness within local communities, unconventional attitudes towards profit and growth.”
How do you know if a company has a degrowth business model?
Nesterova’s research raises an important question — what actually constitutes a degrowth business model overall? Are there any minimum criteria? Nesterova offers a comprehensive list of characteristics, covering business operations, environmental and societal elements, and worldviews. She suggests that becoming a degrowth business would require “adopting characteristics of a degrowth business, covering the whole range of business operations and orientations where applicable, in line with degrowth.”
A shorter list is offered by Khmara and Kronenberg, who present seven criteria to assess whether a company follows the degrowth paradigm, including showcasing alternatives to the dominant business growth model, democratic governance, collaborative value creation, making products that last and are repairable, and reduction of environmental impacts at all stages of product/service life-cycle.
Khmara and Kronenberg explore Patagonia as a case study to test their framework. Patagonia is an interesting example as it is probably the only large company that is considered to be somewhat associated with degrowth or at least tries to make a distinction between bad and good growth. The former is “when people engage in continued consumption without attaching value to the lifetime of a product or how it is made,” while the latter is when “people buy better products that last longer.” The researchers suggest that while Patagonia is an exceptional company it has not embraced a degrowth model. “Ultimately it does not encourage people to live with less. It continues to sell its products, and it sells them at expensive prices, even if it sometimes suggests that people should not buy its products,” they write.
More insights can be drawn from the growing research on sufficiency business models, which aim to reduce consumer demand and help them do more with less. Bocken and Short define them as follows: ”sufficiency-based business models deliver sustainability by reducing absolute material throughput and energy consumption associated with provision of goods and services by moderating end-user consumption: encouraging consumers to make do with less.” They suggest that these business models “focus on the higher levels of the waste hierarchy (primarily avoid, reduce and reuse)”. In another study, Bocken et al. present 12 main business strategies for sufficiency that have been identified in literature and practices, including conscious sales and marketing techniques, full life-cycle sufficiency, product longevity, and so on. These strategies can also be used to help establish clear criteria for a degrowth business model.
We need a D-Corp movement
While lists of criteria, such as the abovementioned ones and others, may be helpful I believe that the “degrowth lens” should be broader. The translation of degrowth from a “vision of a post-capitalist political economy” to viable business models requires more than just a checklist — it requires a movement. What is needed is the type of community-building work that will create both a system in place for recognizing degrowth businesses and supporting them.
I’m considering B Corps as a good example to learn from (“we’re building the B Corp movement to change our economic system — and to do so, we must change the rules of the game”). Just like we have B Corps, we need D Corps. A similar structure for certification can be designed, including an assessment tool with a threshold that a company needs to meet to be recognized as a D-Corp, a legal commitment to help integrate degrowth into the company’s bylaws, and a transparency requirement. This could be an opportunity to build an ecosystem, which is critical to scaling the efforts to develop new models as we can learn from other examples like platform co-ops and the Zebra movement.
A question of timing
Businesses interested in exploring degrowth business models will no doubt go against the stream while experimenting with business models that are grounded in the notion of “less” in industries that are ingrained in “more.” These businesses will need to decide if they are ready to experiment with it now or if they prefer to wait for a broader change, where everyone in their industry shift to play by the degrowth rules to make it work. Some businesses, like the fashion startup Early Majority, “fashion’s first degrowth brand”, believe it is the former. Combining clothes designed “for maximum utility and lifespan” and a lifetime membership offered to customers “to reduce the waste and overconsumption that has defined the apparel industry,” it clearly wants its degrowth principles to play a role in building a competitive advantage. At the same time Jon Howard, the founder, acknowledges the challenges of building a degrowth model now, for example when it comes to finding investors that understand Early Majority’s mission.
Howard explained her challenge: “Our membership model addresses the contradiction between scale and sustainability. But, you cannot build a business that doesn’t grow, because that isn’t a good experience for the people in the business. What we need to do is address how we grow, to dematerialise growth and create businesses with less drawdown on natural capital. The pace of growth most VCs have come to expect is not sustainable for the planet or for the people in the business.”
Every business leader and entrepreneur, who is interested in growth will have to deal with similar questions and decide if this is the right time to deep their toes into degrowth or if they prefer to wait a little bit longer. The more experiments we’ll see with degrowth business models the easier this journey will be. This is why we probably need to see D-movement and ecosystem rising to support what may be a critical milestone in the way to an awakened sustainability future.
Raz Godelnik is an Assistant Professor of Strategic Design and Management at Parsons School of Design — The New School in NY, where he serves as the Strategic Design & Management BBA Program Director. He is the author of Rethinking Corporate Sustainability in the Era of Climate Crisis — A Strategic Design Approach, which was published by Palgrave Macmillan in July 2021. For more information on his work see Sandbox Zero. Feel free to connect on Twitter and LinkedIn.